NEW YORK (AP) -- Argentina got some breathing room Wednesday in its billion-dollar debt showdown as an appeals court indefinitely suspended a federal judge's ruling that threatened to push the country into default.
The two-paragraph appellate court order sets a Feb. 27 date for oral arguments in the case, averting a Dec. 15 deadline for a $1.3 billion payment that Argentina has refused to make despite losing its case against NML Capital Ltd., an investment fund that specializes in suing over unpaid sovereign debts.
Judge Thomas Griesa had ordered the government of President Cristina Fernandez to pay the money into an escrow account even as it pursued its final appeals.
The 2nd U.S. Circuit Court of Appeals gave no explanation for staying the order, but all parties in the case now have two more months to prepare for hearings.
Fernandez had called the ruling by Griesa "judicial colonialism" and said she won't pay anything to what she calls "vulture funds." She said that if it was allowed to stand, the judge's ruling would give financial speculators a huge advantage over countries that need to restructure debts and protect their citizens as they grow their way out of economic crises.
Griesa ordered the Bank of New York to stop Argentina's Dec. 15 payment to the vast majority of its other bondholders if the government didn't pay the plaintiffs by then, a draconian remedy that threatened to set off a fiscal crisis.
If the ruling stands and the plaintiffs get paid, then other groups holding more than $11 billion in defaulted Argentine debt would pounce on the precedent and demand immediate payment as well. But if Fernandez keeps her word and refuses to pay, then Argentina would fall into default on all the rest, and more than $20 billion would come due.
Lawyers for NML Capital declined to comment on the stay. Argentine officials offered no immediate reaction.
Sean F. O'Shea, an attorney representing a group of bondholders holding the $20 billion in debts, called the stay a "total victory for our position." He said it showed the appeals court judges "understand the importance of these issues and are going to give it a full hearing."
"We were really concerned something was happening that was off the rails in terms of the constitutional issues and equity. We fully expect the 2nd Circuit will put it right," he added.
In court papers, O'Shea and other lawyers called Griesa's ruling a "well-intentioned but misguided attempt by the district court" to assist plaintiffs who are market speculators collect a judgment from Argentina.
Even the threat of the Dec. 15 deadline brought serious consequences. In the week since Griesa ruled in favor of the NML Capital fund run by billionaire Paul Singer and other plaintiffs, the cost of maintaining Argentina's overall debts soared in trading on U.S. and European bond markets, and the cost of insuring these debts through credit default swaps spiked.
Fitch's Ratings Service downgraded Argentine bonds, already considered junk, to one step above default, predicting the government won't pay. These and other reactions have made borrowing even more expensive for any company operating in Argentina, and analysts were predicting that with credit drying up and the country's recession deepening, social unrest would lead to political upheaval.
Earlier Wednesday, Fernandez said the judge's remedy was particularly unfair since Singer and other holdouts had refused two opportunities to swap the debt left over from Argentina's world record 2001 default with new bonds, which the government has reliably paid since 2005.
Bondholders who accepted the swaps got less than 30 cents for the nominal dollar value of the original debt, representing a huge relief package that has enabled Argentina to quickly grow its way out of an abysmal crisis that left half the population in poverty.
Argentina has the goodwill to keep its promises to these restructured bondholders, Fernandez told Argentine executives during a joint appearance with Brazilian President Dilma Rousseff. "We're going to honor our commitment, as a country that has recovered its self-esteem," she said to heavy applause.
Argentina has more than $45 billion in foreign currency reserves, but that money is committed to a slew of government subsidies and economic stimulation programs.
O'Shea said he was certain Argentina's bonds would rally now that the markets have certainty that the country's December debt installments will be paid. "The market will realize calmer heads have prevailed," he said.
Economy Minister Hernan Lorenzino said earlier Wednesday that the government was considering asking Argentina's congress to reopen the 2005 and 2010 debt exchanges, but only to offer the holdouts yet another opportunity to accept the same steep "haircuts."
That's a more flexible position than Argentina has shown in years, but hardly enough to satisfy the plaintiffs now that the judge has ordered them to be paid 100 percent plus interest for the debt that many of them bought for pennies on the dollar in 2002, when Argentina's economy was in ruins.
And since clauses in these bond contracts say that everything Argentina owes could come due immediately, and in full, if the government "voluntarily" changes the terms of its debt restructurings, Lorenzino stressed that Argentina won't make any move without a definitive order from the U.S. courts.
Associated Press writers Larry Neumeister reported this story in New York and Michael Warren reported from Buenos Aires.